Middle East and North Africa Regional Economic Outlook · Bahrain (BB) Oman (BBB-) Qatar (AA) GCC countries. UAE (AA) EMBI. 13. ... Business friendly policies are needed to enable

1

Middle East and North Africa Regional Economic Outlook

October 19, 2016

2

RoadmapGlobal Environment

MENAP Conflicts

MENAP Oil Exporters

MENAP Oil Importers

3

Global growth remains lackluster

World U.S. Euro Emerging China RussiaArea markets

2015 3.2 2.6 2.0 4.0 6.9 -3.7

2016 3.1 1.6 1.7 4.2 6.6 -0.8

2017 3.4 2.2 1.5 4.6 6.2 1.1

Risks are to the downside―more pronounced from inward-looking policies and secular stagnation, less so from emerging markets

4

Oct 2016 GFSR Apr 2016 GFSR

Credit risks

Emerging market risks

Market and liquidity risks

Macroeconomic risks

Monetary and financial conditions

Risk appetite

Global Risks

Away from center signifies higher risks, easier monetary and financial conditions, or higher risk appetite.Source: IMF GFSR report.

0

1

2

3

4

5

6

2013 2014 2015 2016 2017

50 percent confidence interval

70 percent confidence interval

90 percent confidence interval

World GDP Growth(Percent change)

Source: World Economic Outlook.

RoadmapGlobal Environment

MENAP Conflicts

MENAP Oil Exporters

MENAP Oil Importers

5

6

Conflicts in the MENAP region have resulted in a massive humanitarian crisis

0

10

20

30

40

50

60

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

WorldMENAP Region

Displaced Persons: Refugees Plus IDPs

(Millions)

0

2

4

6

8

10

12

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

PAK

LBN

IRN

JOR

SDN

IRQ

YE

MA

FGE

GY

DZ

AM

RT SYR

DJI

EU

-28

Registered Refugees(LHS)As a share of population(RHS)

Refugees Hosted in MENAP Countries

20

7

Conflicts threaten economic stability in the MENAP region

Note: Country borders do not imply any judgment on the part of the IMF on the legal status of any territory or any endorsement or acceptance of such boundaries.

Spillovers from Conflicts

AFG

DZA

MRT

MAR

TUN

EUROPE

YMN

SOM

DJI

SDN

EGYLBY

IRNIRQ

SYR

SAU

OMNUAE

QAT

BHR

JORPAK

KWT

LBNWBG

Conflict countriesMENAP countries

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

Iraq Libya Yemen

2005-14 2015 2016

Real Overall GDP Growth(Percent)

-28%

RoadmapGlobal Environment

MENAP Conflicts

MENAP Oil Exporters

MENAP Oil Importers

8

9

Oil prices are expected to remain low

0

20

40

60

80

100

120

140

160

2014 2015 2016 2017 2018 2019

95% confidence interval 86% confidence interval68% confidence interval Brent Futures

Brent Crude Oil Price (U.S. dollars per barrel)

Sources: Bloomberg; IEA and IMF staff calculations.

WEO Baseline AverageOil Price:2016: $432017: $512020: $56

Crude Oil Production(Change relative to previous year, millions of barrels per day)

-2

-1

0

1

2

3

2014 2015 2016 2017 2018-21GCC + Algeria Iran Libya + YemenIraq United States OtherTotal

10

Oil exporters are making strides in adjusting their fiscal positions, but much remains to be done…

-60

-40

-20

0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Non-oil Fiscal Balance(Percent of non-oil GDP)

Non-GCC

GCC-15

-10

-5

0

5

10

15

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Overall Fiscal Balance(Percent of GDP)

Non-GCC

GCC

11

..and next steps will be harder to implement, especially in an environment of low growth

Fiscal Plans and Fiscal Rigidity

Note: The vertical and horizontal lines dividing the chart into four quadrants correspond to the median of the respective variables.

AlgeriaBahrain

Iran

Iraq

Kuwait

OmanQatar

Saudi Arabia

UAE

Yemen

Congo, Rep. of

Gabon

Indonesia

SudanTrinidad and Tobago

Venezuela

-10

-5

0

5

10

15

20

25

30

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Proj

ecte

d ch

ange

in n

on-o

il pr

imar

y ba

lanc

e 20

15-2

1(P

erce

nt o

f no

n-oi

l GD

P)

Wage bill(Percent of total expenditure and net lending, 2013-15 average)

–5

0

5

10

15

20

25

BHR OMNQAT UAE SAU KWT ALG IRN IRQ LBY

Asset drawdown Domestic debt accumulation

Foreign debt accumulation Total deficit

12

Financing of Fiscal Deficits(2016, Percent of GDP)

Projected financing is expected to shift from asset drawdown to debt issuance—market conditions remain favorable for most

Sovereign Bond Yields(Percent)

57%

-10%

2

4

6

8

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

Bahrain (BB) Oman (BBB-) Qatar (AA)

UAE (AA) EMBIGCC countries

13

The financial sector should continue to be closely monitored

-5

0

5

10

15

2014 2015 2016

Deposits excl. government Government deposits

GCC’s Deposit Growth, 2014–16(Annual percent change)

0

5

10

15

2011 2012 2013 2014 2015 2016

GCC Private Sector Credit Growth, 2011–16(Annual percent change)

14

Non-oil growth is bottoming out in some countries as fiscal drag eases. Medium-term growth prospects remain subdued.

0

2

4

6

8

Bahrain Kuwait Oman Qatar SaudiArabia

UAE Algeria Iran

2006-15 2016 2017-21

Real Non-oil GDP Growth(Percent)

15%

GCC countries

15

Implementation of diversification plans can help create employment and support fiscal consolidation

Bahrain OmanIraqIran Kuwait

Energy

Knowledge

Services

ManufacturingHuman Capital

Housing and Environment

Transportation and Telecommunications

UAEQatar Saudi Arabia

16

Oil exporters need to accelerate creation of private sector jobs for rapidly growing populations

0

2

4

6

8

10

12

2015 2021

Projected Employment in the GCC (Millions of people)

Public sector employment Private sector employment Unemployment

Key Takeaways on MENAP Oil Exporters

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• MENAP oil exporters continue to face an exceptionally challenging policy environment of persistently low oil prices and conflicts.

• Fiscal consolidation is progressing, but more remains to be done to place public finances on a sounder footing.

• Some countries announced plans to accelerate diversification away from oil. Such plans should be quickly developed into specific reforms and implemented.

• Business friendly policies are needed to enable the private sector to create jobs necessary to absorb a rapidly growing labor force.

• Policymakers need to remain vigilant about financial stability risks given tightening liquidity and the risk of lower bank asset quality.

RoadmapGlobal Environment

MENAP Conflicts

MENAP Oil Exporters

MENAP Oil Importers

18

Macroeconomic stabilization has advanced with sound policies and lower oil prices

Macroeconomic Stability Indicators

Inflation

Deficit

Change inPublicDebt

OfficialReserves

SovereignCreditRatings

2011-13

2016

(Moody’s rating)

(Percent)

(Percent of GDP)

(Percent of GDP)(Months of Imports)

Note: Movement towards the center indicates improvement. Inflation ranges from zero to 10%; deficit and change in public debt from zero to 10% of GDP; reserves from zero to 12 months of imports; and credit ratings from C to Aaa.

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Yet recovery has been weak, and over the medium term MENAP oil importers risk getting stuck in a low-growth equilibrium

Real GDP Growth(Percent)

Income Per Capita(PPP U.S. Dollars in Thousands,

2017-21 growth rates assumed for 2022-35)

Range of country growth rates

TUNJOR

0

1

2

3

4

5

6

7

8

2013 2014 2015 2016 2017

LBN

EGY

PAKMAR

DJI

MENAP Oil Importers MRT

0

5

10

15

20

25

30

35

2016 2035

Emerging Markets 2016

Emerging Markets 2035

21

Higher, more inclusive growth and job creation hinges on raising productivity and capital growth

0

2

4

6

8

Productivity Capital

EMDC MENAPOI

Long-Term Productivity and Capital Growth 2008-2015

(Percentage points)

AFG

EGY

JOR

LBN MAR

PAK

SDN

TUN

S. Asia

E. AsiaWorldLACSSA

Europe and Central Asia

Advanced Europe

5

10

15

20

25

30

35

40

3 8 13 18

Yout

h un

empl

ymen

t rat

e

Unemployment rate

Unemployment(Latest available, percent)

22

Continued fiscal consolidation can expand room for growth-enhancing investment and social spending while putting debt on sustainable path

Changes in Government Revenues and Spending1

(Percentage of GDP, Change from Prior Year)

-1.0

-0.5

0.0

0.5

1.0

2010–13 2014–15 2016–17Capital Subsidies Other currentWages Interest Revenue

60

65

70

75

80

2010 2011 2012 2013 2014 2015 2016 2017

Gross Public Debt(Percent of GDP)

Corruption Infrastructure Regulations Education Finance Trade

Egypt

Pakistan

Morocco

Tunisia

Jordan

23

Reforms have led to advances in key structural areas

0 10 Large(Between 10% and 20%) Better

Some(Zero to 10%)

Score in 2016:(Out of 10)

Improvement from 2007:

Sources: ICRG, PRS Group; World Bank (only finance indicator); World Economic Forum; and IMF staff calculations.Note: Sources of structural indicators were chosen based on data availability. Results are broadly robust to using alternative sources.

Worse

MAR, JOR

TUN

Corruption Infrastructure Regulations Education Finance Trade

EGY

PAK

JOR, TUN

MAR

JOR

EGY

TUN

TUN

EGY

JOR

MAR

PAK

PAK,TUN

JOR

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Reforms need to be accelerated for countries to be able to compete with global peers and further boost inclusive growth and jobs

Structural Reform Ratings Relative to Global Peers(Arrows begin at 2007 ranking and end at 2016 ranking)

Sources: ICRG, PRS Group; World Bank (only finance indicator); World Economic Forum; and IMF staff calculations.Notes: 1. The vertical axis shows the ranking of a countries’ performance relative to the performance of their global peers (defined as EMDCs). The 100 ranking reflects the top ranking among EMDCs; a 80 ranking means a country is performing among the top 80 percent of EMDCs, and so on. The arrows demonstrate changes in rankings that reflect changes in countries’ own performance and/or performance of their global peers (defined as EMDCs). 2. Countries without a substantial change in rankings relative to global peers are not shown. 3. Sources of structural indicators were chosen based on data availability. Results are robust to using alternative sources.

Worse

Better

25

Boosting female labor force participation, which is lower than in global peers, is a $1 trillion opportunity

Gender Gaps in Labor Force Participation¹,²,3

(Percentage points, average 2005-14)

1Defined as male less female labor force participation rate.²AE: Advanced Economies; DEA: Developing and Emerging Asia; EE: Emerging Europe; LAC: Latin America and the Caribbean.3 If the gap in female participation during the past 10 years had been double (instead of triple) the average gap in emerging market and developing countries, MENAP would have gained $1 trillion in cumulative output.

0

10

20

30

40

50

60

MENAPOE MENAPOI LAC Dev. AndEm. Asia

EE AE CCA SSA

Key Takeaways on MENAP Oil Importers

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• Macroeconomic stabilization is progressing thanks to recent reforms, sound policies, and low oil prices.

• Yet high risk of getting stuck in a fragile, low-growth, high-unemployment equilibrium amid weak external demand and continued regional conflicts.

• Higher, more inclusive growth and job creation hinges on raising productivity and capital investment.

• Growth-friendly fiscal reforms – also needed for debt sustainability – and accelerated structural reforms are key to achieve this.

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MENAP outlook is broadly unchanged since last April—subdued growth across the region due to low oil prices and conflicts

Real GDP Growth, 2015-17

GCC and Algeria Iran Conflict

CountriesMENAP Oil

Importers

2015 3.4 0.4 -5.7 3.8

2016 2.0 4.5 7.3 3.6

2017 2.4 4.1 3.5 4.2

▼ Indicates a decline in projections relative to April 2016 REO Update Indicates an increase in projections relative to April 2016 REO Update

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